Debt Ceiling Fight Could Be Critical For Government

Audio

Aired 5/6/11

A San Diego State University professor says the federal government faces a showdown over the debt ceiling later this summer. Some say $14.3 trillion in annual borrowing may not be enough.

SAN DIEGO  The federal government borrowed more than $100 billion in March. A quarter of that paid for interest on existing debt. SDSU finance professor emeritus Tony Cherin said lawmakers will have to decide by August whether to raise the amount of money the government can borrow each year. Failing to raise the limit could create financial chaos.

"If we fail to pay the interest on our treasury bonds and notes and bills then nobody will invest in them again and we will not, the government will not be able to pay money again," said Cherin.

Keeping the current limit could force the government to make drastic spending cuts, tax increases or both. It could also result in a government shutdown.

The United States is authorized to borrow $14.3 trillion dollars under the current budget. That number may have to go up in August when the next spending plan is passed.

"Part of the reason we need to increase the debt ceiling is that we owe interest on the debt that's already outstanding,” said Cherin. “If we don't pay that interest we would be in default on our securities and that would have huge, huge repercussions."

That could lead to a government collapse, said Cherin. Interest on debt payment accounted for a quarter of the 100 billion dollars borrowed in March.